* Fuji Heavy, Chery to build $360 mln plant in Dalian-Nikkei
* Fuji Heavy, Chery combination makes sense - analysts
* Chery among several partner candidates in China-Fuji Heavy
* Fuji Heavy shares in line with Tokyo market (Updates with details, background, analyst comment)
TOKYO, Dec 21 (Reuters) - Fuji Heavy Industries, Japan's smallest carmaker, said on Tuesday it was in talks with China's privately held Chery Automobile Co to build Subaru cars in the world's biggest car market.
The two companies are in the final stages of talks to spend about 30 billion yen ($360 million) to construct a factory in the northern city of Dalian, initially building 50,000 mid-sized vehicles a year from 2013 and eventually raising that to 150,000, the Nikkei business daily reported earlier.
A Fuji Heavy spokesman confirmed that it was in talks with Chery, but added that it was also in discussions with several other Chinese carmakers over local production of its Subaru cars. No one at Chery could immediately be reached for comment.
Fuji Heavy is among the last automakers in the world to enter China with local production. Its car sales in China have grown rapidly but are limited to around 57,000 this year in the 17-million-unit market partly due to steep import tariffs.
Fuji Heavy CEO Ikuo Mori told Reuters this month he wanted to reach a decision on how to produce cars in China by the end of the financial year in March, moving back a previous target of the end of 2010.
Fuji Heavy has said a joint venture factory and technical licensing to a local automaker were both possibilities, although Mori said he preferred a joint venture arrangement.
Mori will visit China in January to discuss the plan, and the companies will aim to announce a decision for a 50-50 joint venture by March, the Nikkei said.
Analysts said the combination made sense given their similar size and Chery's lack of foreign partners as the maker of the entry-level QQ cars aims to beef up its model line-up and technology in an increasingly competitive market.
"I think it's a good combination for both sides," said Lei Zhou, manager at consultancy Deloitte Tohmatsu Consulting. "Chery has no other foreign joint venture so it would be easy for Fuji Heavy to deal with."
A partnership with Fuji Heavy, known for its expertise in all-wheel-drive, boxer engine cars, would likely be welcomed by Chinese authorities looking to support stronger local carmakers such as Chery and Geely Automobile.
Chery, one of China's top makers of small, entry-level cars, faces pressure from local and foreign brands alike as they seek growth in lower-income, inland markets.
Rival Geely this year bought Swedish premium brand Volvo from Ford Motor Co as it aims to expand both in China and globally.
Shares of Fuji Heavy, held 16.5 percent by Toyota Motor, reacted little to the news, rising 0.6 percent on Tuesday morning, in line with the broader Tokyo market. (Reporting by Chang-Ran Kim and Tim Kelly in TOKYO, Swati Chitnis in BANGALORE; Editing by Chris Gallagher)